What is the Tip Credit?

Federal law and most states allow tipped workers to be paid a lower minimum wage, as long as they earn at least the full minimum wage when tips are included. (The difference between the tipped wage and the full minimum wage is called the "tip credit.") Service workers are guaranteed to earn at least the minimum wage per hour during any pay period; if tips plus the tipped wage does not equal at least the current minimum wage, then businesses are legally required to make up that amount. With the current model, most servers and bartenders make well above the minimum wage when their tips are included.

Why is the tip credit important for our restaurants?

The tip credit allows owners to keep labor costs down, while keeping it affordable for people to dine out. If the tip credit is removed, restaurants will be forced to raise their prices drastically to help cover costs. Driving menu prices up has a direct correlation with losing business: One study of minimum wage increases in the Bay Area—where there are no tip credits--shows that that, for every dollar that the minimum wage is increased, the chance of a restaurant closing goes up by as much as 14 percent.


Why is the tip credit important for restaurant workers?

One of the consequences of steeper wage mandates and in turn higher costs to guests is a change to the business model. To maintain a comparable out-of-pocket price point for our customers, some restaurants in cities that are approaching $15 with no tip credit are using “service included” models. With these models, guests are told that the traditional tip is no longer necessary because the higher wage is included in the price of the food, or included in the charge at the bottom of the bill.

Under these models, that money is the property of the owner, not the server, thus decreasing the income of tipped workers dramatically. Restaurateurs like Danny Meyer, who have experimented with this no-tip model, have seen staff leave the company “in droves.”

Why is the tipping status quo preferred?

The restaurant industry in America is unique, and survey data proves that both tipped workers and the public prefer it as well. Restaurant workers often look at ourselves as commission-based sales people--the more we sell the more we make. In addition, we are rewarded when we give guests exceptional experiences. Our guests appreciate that they can show their satisfaction through tipping; it is a way to show their respect for us executing our craft. Far from being demeaning, as some activist organizations have claimed, the tipping system is empowering for servers and bartenders. 

INFOGRAPHIC: What Does Your Staff Really Think Of "No Tipping"?

How can hourly workers get more involved?

First and foremost, restaurant servers should become a member and join our fight here on our website. Sending us a testimonial about why you prefer and rely on tip culture and how the service industry has had a positive impact on your life is a great place to start. It is also important to reach out to your local legislators and share with them how important the tip credit is to you and our industry. Also, share our website and Facebook page with all your industry friends. It’s important to educate everyone that we prefer tip culture and the tipping status quo. Letting all your friends know that the tip credit is supported by the workers is how we will best spread our message.